A Stronger Second Competitor? Analyzing the Competitive Effects of the Beth Israel-Lahey Transaction

By Cory Capps, Kayuna Fukushima, Tetyana Shvydko & Zenon Zabinski

The economic literature provides little guidance into the circumstances under which eliminating existing competitors while simultaneously creating a closer second competitor to a market leader will increase competition. This issue was recently analyzed by the Massachusetts Health Policy Commission (“HPC”) in its evaluation of a proposed merger of several local health systems to form the Beth Israel Lahey Health (“BILH”) system, which is comparable in size to Partners HealthCare (“Partners”), the largest and most expensive system in the Boston region. The HPC investigated whether shifts in patient volume away from Partners to BILH would be sufficient to reduce healthcare spending and concluded that they likely would not. The HPC issued its findings in a cost and market impact review report and referred the merger to the Massachusetts Attorney General. After the parties agreed to various conduct remedies, including a cap on price increases, the Commonwealth allowed the merger to close. The Federal Trade Commission subsequently opted to close its investigation, though it labeled the decision a “close call.”

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